Market Concentration and Natural Resource Development in Rural America

Abstract

Natural resource development, both extractive (oil, gas, mining, and timber) and non-extractive (tourism, real estate, outdoor recreation), has been found to negatively impact economic prosperity in rural America. One mechanism recently proposed for why this occurs is high levels of labor market concentration, or oligopsony. Oligopsony occurs when there are few employers within a labor market and can lead to suppressed wages and a power imbalance between employers and workers. In this paper, we test the moderating effect of labor market concentration on the relationship between natural resource development and per capita income and poverty in rural America from 2010 to 2016. By comparing results between extractive and non-extractive development, as well as manufacturing, we show that labor market concentration attenuates the beneficial relationship observed at low levels of specialization in natural resources—particularly for extractive forms of development. Further, by finding no significant relationship between manufacturing specialization and economic prosperity, nor any moderating effect of labor market concentration in the case of manufacturing, we demonstrate that natural resource development and labor market concentration have a unique relationship with rural American economic prosperity.